Modification of the Modigliani–Miller Theory for the Case of Advance Payments of Tax on Profit
Bibliographic record
Abstract
The first serious study (and first quantitative study) of influence of capital structure of the company on its indicators of activities was the work by Nobel Prize Winners Modigliani and Miller.Their theory has a lot of limitations.One of the most important and seriouse assumptions of the Modigliani -Miller theory is that all financial flows as well as all companies are perpetuity.This limitation was lift out by Brusov-Filatova-Orekhova in 2008(Filatova et al. 2008), who have created BFO theory -modern theory of capital cost and capital structure for companies of arbitrary age.Despite the fact that the Modigliani-Miller theory is currently a particular case of the general theory of capital cost and capital structure -Brusov-Filatova-Orekhova (BFO) theory -it is still widely used at the West.In current paper we discuss one more limitation of Modigliani -Miller theory: a method of tax on profit payments.Modigliani -Miller theory accounts these payments as annuity-immediate while in practice these payments are making in advance and thus should be accounted as annuity-due.We generalize the Modigliani-Miller theory for the case of advance payments of tax on profit, which is widely used in practice, and show that this leads to some important consequencies, which change seriously all the main statements by Modigliani and Miller.These consequencies are as following: WACC starts to depend on debt cost kd, WACC turns out to be lower than in case of classical Modigliani-Miller theory and thus company capitalization becomes higher than in ordinary Modigliani-Miller theory.We show that dependence of equity cost on leverage level L is still linear, but the tilt angle with respect to L-axis turns out to be smaller: this could lead to modification of the divident policy of the company.Correct account of a method of tax on profit payments demonstrates that shortcomings of Modigliani -Miller theory are dipper, than everybody suggested: the underestimation of WACC really turns out to be bigger, as well as overestimation of the capitalization of the company.This means that systematic risks arising from the use of modified Modigliani -Miller theory (MMM theory) (which is more correct than "classical' one) in practice are higher than it was suggested by the "classical" version of this theory.
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How this classification was reachedexpand
Full frame machine prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. The Gemma side is a direct model label for every work in the frame, read from the title-only record. The Codex side is a classifier learned from the 10,348 direct Codex labels and calibrated to design-weighted sample rates; fields without enough sample support carry no Codex call. Candidate is the union of the two sides; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels.
Distilled classifier scores by category (both heads)
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.003 | 0.008 |
| Meta-epidemiology (narrow) | 0.001 | 0.001 |
| Meta-epidemiology (broad) | 0.001 | 0.002 |
| Bibliometrics | 0.003 | 0.003 |
| Science and technology studies | 0.002 | 0.003 |
| Scholarly communication | 0.003 | 0.008 |
| Open science | 0.003 | 0.002 |
| Research integrity | 0.004 | 0.005 |
| Insufficient payload (model declined to judge) | 0.024 | 0.003 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one source (direct Gemma or distilled Codex), not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".